Randomization and the American put

Peter Carr

Research output: Contribution to journalArticle

Abstract

While American calls on non-dividend-paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We use a technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semiexplicit approximation for American option values in the Black-Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.

Original languageEnglish (US)
Pages (from-to)597-626
Number of pages30
JournalReview of Financial Studies
Volume11
Issue number3
DOIs
StatePublished - 1998

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Randomization
Approximation
Black-Scholes model
Exact solution
American options
Option value
Stock dividends

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Randomization and the American put. / Carr, Peter.

In: Review of Financial Studies, Vol. 11, No. 3, 1998, p. 597-626.

Research output: Contribution to journalArticle

Carr, Peter. / Randomization and the American put. In: Review of Financial Studies. 1998 ; Vol. 11, No. 3. pp. 597-626.
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